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June 17, 2015 Chair Yellens Press Conference FINAL
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Transcript of Chair Yellens Press Conference June 17, 2015
CHAIR YELLEN. Good afternoon. Today the Federal Open Market
Committee
reaffirmed the current 0 to percent target range for the federal
funds rate. Since the
Committee last met in April, the pace of job gains has picked up
and labor market conditions
have improved somewhat further. Inflation has continued to run
below our longer-run objective,
but some of the downward pressure on inflation resulting from
earlier sharp declines in energy
prices is abating. The Committee continues to judge that the
first increase in the federal funds
rate will be appropriate when it has seen further improvement in
the labor market and is
reasonably confident that inflation will move back to its 2
percent objective over the medium
term. At our meeting that ended today, the Committee concluded
that these conditions have not
yet been achieved. It remains the case that the Committee will
determine the timing of the initial
increase in the federal funds rate on a meeting-by-meeting
basis, depending on its assessment of
incoming economic information and its implications for the
economic outlook. Let me
emphasize that the importance of the initial increase should not
be overstated: The stance of
monetary policy will likely remain highly accommodative for
quite some time after the initial
increase in the federal funds rate in order to support continued
progress toward our objectives of
maximum employment and 2 percent inflation. I will come back to
todays policy decision in a
few moments, but first I would like to review recent economic
developments and the outlook.
The U.S. economy hit a soft patch earlier this year; real gross
domestic product looks to
have changed little in the first quarter. Growth in household
spending slowed, business fixed
investment edged down, and net exports were a substantial drag
on growth. Part of this
weakness was likely the result of transitory factors. Despite
the soft first quarter, the
fundamentals underlying household spending appear favorable, and
consumer sentiment remains
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solid. Looking ahead, the Committee still expects a moderate
pace of GDP growth, with
continuing job gains and lower energy prices supporting
household spending.
The labor market data so far this year have shown further
progress toward our objective
of maximum employment, although at a slower pace than late last
year. Over the past three
months, job gains have averaged about 210,000 per month, down
from an average pace of
280,000 per month over the second half of last year, but still
well above the pace consistent with
trend labor force growth. Although the unemployment rate, at 5.5
percent in May, was
unchanged from the latest reading available at the time of our
April meeting, the labor force
participation rate edged up. A broader measure of unemployment
that includes individuals who
want and are available to work but have not actively searched
recently and people who are
working part time but would rather work full time has continued
to improve. But it seems likely
that some cyclical weakness in the labor market remains: The
participation rate remains below
most estimates of its underlying trend, involuntary part-time
employment remains elevated, and
wage growth remains relatively subdued. So, although progress
clearly has been achieved, room
for further improvement remains.
Inflation has continued to run below our longer-run objective,
in part reflecting lower
energy prices. Declines in import prices have also restrained
inflation. However, energy prices
appear to have stabilized recently. My colleagues and I continue
to expect that as the effects of
these transitory factors dissipate and as the labor market
improves further, inflation will
gradually move back toward our 2 percent objective over the
medium term. Market-based
measures of inflation compensation remain low, though they have
risen some from their levels
earlier this year, and survey-based measures of longer-term
inflation expectations have remained
stable. The Committee will continue to monitor inflation
developments carefully.
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This assessment of the outlook is reflected in the individual
economic projections
submitted for this meeting by FOMC participants. As always, each
participants projections are
conditioned on his or her own view of appropriate monetary
policy. For economic growth,
participants reduced their projections for this year, in line
with the disappointing data for the first
quarter. The central tendency of the growth projections for 2015
is now 1.8 to 2.0 percent, down
a little more than percentage point from the March projections.
The central tendency rises to
2.4 to 2.7 percent next year, somewhat above estimates of the
longer-run growth rate. The
unemployment rate projections for this year are a little higher
than in March. At the end of this
year, the central tendency for the unemployment rate stands at
5.2 to 5.3 percent, a bit above
participants estimates of the longer-run normal unemployment
rate. Committee participants
generally see the unemployment rate declining a little further
over the course of 2016 and 2017.
Finally, FOMC participants project inflation to be quite low
this year, largely reflecting lower
energy and non-energy import prices. The central tendency of the
inflation projections for this
year is below 1 percent, unchanged since March. As the
transitory factors holding down
inflation abate, the central tendency rises to 1.6 to 1.9
percent next year and to 1.9 to 2.0 percent
in 2017.
Returning to monetary policy, as I noted, the Committee
reaffirmed its view that the
current 0 to percent target range for the federal funds rate
remains appropriate. As we said in
our statement, the decision to raise the target range will
depend on our assessment of realized
and expected progress toward our objectives of maximum
employment and 2 percent inflation.
We continue to base that assessment on a wide range of
information, including measures of labor
market conditions, indicators of inflation pressures and
inflation expectations, and readings on
financial and international developments. And we continue to
anticipate that it will be
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appropriate to raise the target range for the federal funds rate
when the Committee has seen
further improvement in the labor market and is reasonably
confident that inflation will move
back to its 2 percent objective over the medium term.
On both of these fronts, as I noted, we have seen some progress.
Even so, the Committee
judged that economic conditions do not yet warrant an increase
in the federal funds rate. While
the Committee views the disappointing economic performance in
the first quarter as largely
transitory, my colleagues and I would like to see more decisive
evidence that a moderate pace of
economic growth will be sustained, so that conditions in the
labor market will continue to
improve and inflation will move back to 2 percent.
Once we begin to remove policy accommodation, we continue to
expect thatas we say
in our statementeven after employment and inflation are near
mandate-consistent levels,
economic conditions may, for some time, warrant keeping the
target federal funds rate below
levels the Committee views as normal in the longer run. In other
words, although policy will be
data dependent, economic conditions are currently anticipated to
evolve in a manner that will
warrant only gradual increases in the target federal funds
rate.
Compared with the projections made in March, most FOMC
participants lowered
somewhat their paths for the federal funds rate, consistent with
the revisions made to the
projections for GDP growth and the unemployment rate. The median
projection for the federal
funds rate continues to point to a first increase later this
year, with the rate rising to about
1 percent in late 2016 and 2 percent in late 2017. In 2016 and
2017, the median path is about
percentage point below that projected in March. The median
projected rate in 2017 remains
below the 3 percent or so projected by most FOMC participants as
the longer-run value of the
federal funds rate even though the central tendency of the
unemployment rate by that time is
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slightly below its estimated longer-run value and the central
tendency for inflation is close to our
2 percent objective. Participants provided a number of
explanations for the federal funds rate
running below its normal longer-run level at that time. These
included, in particular, the residual
effects of the financial crisis, which are likely to continue to
constrain spending and credit
availability for some time.
I would like to emphasize that the forecasts of the appropriate
path of the federal funds
rate are conditional on participants individual projections of
the most likely outcomes for
economic growth, employment, inflation, and other factors. But
our actual policy decisions over
time will depend on evolving economic conditions. Accordingly,
if the expansion proves to be
more vigorous than currently anticipated and inflation moves
higher than expected, then the
appropriate path would likely follow a steeper and higher
trajectory; conversely, if conditions
were to prove weaker, then the appropriate trajectory would be
lower and less steep.
Finally, the Committee will continue its policy of reinvesting
proceeds from maturing
Treasury securities and principal payments from agency debt and
mortgage-backed securities.
The Committees sizable holdings of longer-term securities should
help maintain accommodative
financial conditions and promote further progress toward our
objectives.
Thank you. Ill be happy to take your questions.
YLAN MUI. Hi, Ylan Mui from the Washington Post. As you
mentioned, almost all of
the FOMC participants believe that the first rate hike will come
this year. But two of your
colleagues believe that 2016 is the appropriate time, the IMF
has called on 2016 as the
appropriate time for liftoff as well, and markets seems to place
a greater probability of liftoff in
January than they do in September. So what arewhat is the
misunderstanding here? What
iswhat do they have wrong, and why do you think that waiting
until 2016 is a mistake?
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CHAIR YELLEN. Well, there are obviously a range of opinions,
both in the market and
among Committee members, at this time on what the appropriate
stance of policy is likely to be
later this year and next year. But, importantly, thewhen the
people write down their dots in the
SEP, theyre making forecasts about what unfolding data is likely
to show. But the participants
will all betheir views will evolve with unfolding data.
For all of us, the appropriate policy decision is going to be
data dependent, and all of us
will be looking at incoming data. And our opinions about the
appropriate timing of
normalization are likely to shift as we look at how the data
evolves. Differences in the
appropriate assessments of the appropriate stance of policyin
addition to reflecting different
views on the outlook, there are a set of risks that all of us
need to weigh in judging on the
judging the appropriate time of the beginning of normalization.
On the one hand, waiting too
long to begin normalization can risk significantly overshooting
our inflation objective given the
lags in the operation of monetary policy. And, on the other
hand, beginning too early could risk
derailing a recovery that we have worked for a very long time to
try to achieve. And so were
trying to assess those risks.
But I want to emphasize, sometimes too much attention is placed
on the timing of the
first increase in the federal funds rate. And what should matter
to market participants is the
entire trajectory, the entire expected trajectory of policy.
And, again, while our actual policy
decisions will have to evolve in light of what really does
happen in the economy, the Committee,
as you can see by the SEP projections, currently anticipates
that conditions will evolve in the
economy in a manner that will make it appropriate to raise the
federal funds rate gradually over
time.
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STEVE LIESMAN. Madam Chair, I wonder if you might characterize
the progress made
towards fulfilling the Feds two criteria. Are you somewhat more
confident, not confident at all
that youre moving towards 2 percent? Has there been a lot of
improvement in the labor market?
Some improvement? And how should we judge when those two
criteria have been fulfilled?
CHAIR YELLEN. Well, its a judgment that the Committee iswill
have to make, and,
as Ive said previously and as weve said in the statement, it
will depend on a wide range of data
and not on any simple indicators. So I cant provide youit would
be wrong for me to provide
you a roadmap that said something as simple as, if the
unemployment rate declines to X, that
then the labor market will have improved enough for us to begin
to raise policy.
Obviously, we have to look at the pace of job creation. We have
to look at whats
happening to labor force participation, to part-time employment
for economic reasons, to job
openings, to the pace of quits, to wage inflation, and other
indicators of the state of the labor
market. I did say when we agreed that labor market slack has
diminished to some extent in the
intermeeting period, and, clearly, over a longer span of time,
over the last several years,
obviously weve made considerable progress in moving toward our
goal of maximum
employment. So, in spite of the fact that there is some progress
on that front, the Committee
wants to see some further progress before feeling that it will
be appropriate to raise rates.
On inflation, again, there has been some progress, in the sense
energy prices appear to
have stabilized. Now, inflation is going tooverall inflation is
likely to run at a low level for a
substantial period of time. The big declines in energy prices
came toward the end of last year
and the beginning of this year, and theyre not going to wash out
of the inflation data until late in
this year. But the fact that energy prices have stabilized means
that the pressure from that source
is diminishing.
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In addition, the dollar appears to have largely stabilized. And,
with respect to core
inflation, it has been running under our 2 percent objective,
but declining import prices have
been reducing that pressure. I believe that as the labor market
continues to improve and as our
confidence in that forecast rises, at least for me, my
confidence will also rise that inflation will
move back up toward 2 percent. I expect that to, over time, put
upward pressure on core
inflation.
JON HILSENRATH. Thank you, Chair Yellen. Jon Hilsenrath from the
Wall Street
Journal. Two questions if I may. First, I wanted to ask you
about a comment that New York
Fed President William Dudley made recently that, in retrospect,
the Fed should have raised
interest rates more aggressively during the 20042006 cycle. This
was in a footnote to a speech
he gave. I wonder if you agree with that and whether there are
any lessons from the 20042006
cycle that should be applied today. And, second, relating to
Congress, the Fed has resisted past
efforts in Congress to pass measures like an Audit the Fed bill
or a measure to subject the Fed
to a policy rule. Theres now a Shelby bill out there. I wonder
if theres anything in that that
you can accept and, more broadly, whether theres anything you
could point to that Congress can
do to make the Fed a more effective institution and a more
accountable institution. Thank you.
CHAIR YELLEN. Okay, so on the first question you asked about the
200406 rate
increase cycle. Throughout that period, the Fed indicated that
rates would rise at a measured
pace, and that turned out to be, I believe, 17 meetings, with 25
basis point increases at each
meeting. As Ive emphasized, previously, we haveabsolutely do not
expect to follow any
mechanical 25 basis points a meeting, 25 basis point every other
meeting, no plan to follow any
type of mechanical approach to raising the federal funds rate.
We will evaluate incoming
conditions and move in the manner that we regard as appropriate.
So thats one lesson. You
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know, conceivably, I think, with the benefit of hindsight, it
might have been better to raise rates
more rapidly or more during the 200406 cycle. You know, Im not
certain of that judgment, but
I think theres a case to be made.
You asked about Audit the Fed and the Shelby bill. The Shelby
bill has a title in it that
addresses a number of issues pertaining to the Fed. I suppose I
would ask, what exactly is the
problem? We place high priority on being an accountable and
transparent central bank, and I
think that if you compare the transparency of monetary policy
decisions in the Federal Reserve
with other central banks, we are one of the most transparent
central banks in terms of the
information that we provide to the public in a whole variety of
ways. To my mind, the Fed is
accountable, and we work well as an institution. Im not certain
what the problem is that needs
to be addressed.
SAM FLEMING. Thanks very much. Sam Fleming from the Financial
Times. First
question is also referencing something that Bill Dudley said
recently, which is to do with the use
of the balance sheet in tightening monetary policy. He suggested
that the short rates should be
hiked some way from the zero lower bound before the Fed
continuesconsiders ending
reinvestments. I wondered if you could give a little bit more
clarity on how the Fed intends to
approach the issue of ending reinvestments on its balance sheet.
Would you, for instance, see
any argument for tapering the end to reinvestments to smooth the
profile of maturities in the
portfolio? The second question is really on this point of
gradualyouve used this term today
in the opening statement. Is the term gradual on its way to
becoming official guidance from
the Fed? Is this something we should start to expect to see
popping up in official FOMC
statements in future? Thanks.
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CHAIR YELLEN. So let me start with the balance sheet and our
reinvestment policy.
We issued a normalization statement giving principles of
normalizing policy, and what we said
at that time is that we expected to reduce or cease reinvestment
at some time after we had begun
the process of normalizing policy by raising our target for the
federal funds rate. We said the
timing of that would depend on economic and financial
conditions, and the Committee has really
not made any further decisions about how its going to go about
doing that, so President Dudley
was expressing his own personal point of view. But this is a
matter that the Committee has not
yet decided, and I cant provide any further detail. Its
obviously something we will be thinking
about.
Lets see, you asked about gradual. So, in a sense, we already
have a statement. The
last paragraph of the Federal Open Market Committee statement
says: The Committee
currently anticipates that, even after employment and inflation
are near mandate-consistent
levels, economic conditions may, for some time, warrant keeping
the target federal funds rate
below levels the Committee views as normal in the longer run.
Thats kind of a mouthful. Its
a long sentence, but I think the spirit of that sentence is
consistent with my use of the word
gradual, and it is consistent with what you see in the Summary
of Economic Projections.
Participants are projectingobviously there is a lot of
uncertainty, but theyre projecting
increases that average around 100 basis points per year. Now,
thats not a promise, its
conditional on their economic forecasts, and those forecasts may
prove to be wrong and may
change. But at this time, the assessment that participants have
of the economy suggest to them
that the appropriate pace of normalization to keep the economy
on track to meet our objectives
will be gradual, in that sense.
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PETER COOK. Peter Cook with Bloomberg Television. Madam Chair,
if I could, just
given your discussions over the past two days with your
colleagues, the state of the economy
right now, the improvements youve seen, do you think its still
likely that well see a rate
increase this year? And to follow on that, something Ylan
mentionedthat is, the comment
from the IMF recently, earlier this month, and the encouragement
you got from the IMF to hold
off on raising rates until next year. Specifically, they
saidyour colleague Madam Lagarde
mentioned specifically the riskthat even though theres a risk of
slight inflation by doing that,
that there was concern that a rate hike could trigger market
volatility, with financial stability
consequences that go well beyond the U.S. borders. How do you
respond to those concerns?
Are you factoring in that international context to your
decisionmaking? And was it appropriate
for the IMF to make those kinds of specific recommendations?
CHAIR YELLEN. Okay. So your first question was about a rate
increase this year. You
know, again, the Committee tries to give an indication in the
Summary of Economic Projections
about how economic conditions will unfold, their best
projections of that and what the
appropriate policy will be given in light of those expectations.
And, clearly, most participants
are anticipating that a rate increase this year will be
appropriate.
Now, that assumes, as you can see, that theyre expecting a
pickup in growth in the
second half of this year and further improvement in labor market
conditions. And we will all
bewe will be making decisions however that depend on the actual
data that we see in the
months ahead. So, certainly, we could see data in the months
ahead that will justify the
expectations that you see in the so-called dot plot. But, again,
the important point is, no decision
has been made by the Committee about what the right timing is of
an increase. It will depend on
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unfolding data in the months ahead. But, certainly, an increase
this year is possible. We could
certainly see data that would justify that.
In terms the IMF guidance, you know, I believe the IMF plays a
very useful role by
undertaking reviews of the economic policies of all of its
members. Obviously, there is a range
of opinion among outside observers and market participants as
well as among the Committees
participants, as you can see in the SEP, about how economic
conditions are likely to unfold and,
consequently, the appropriate timing of an initial rate hike. I
think, however, we all agree, and
the IMF agrees, that policies should be data dependent, and the
Committee is always doing its
best to assess the implications of incoming data. I would point
out that we have had incoming
data since that report was written. But, again, I want to
emphasizeand I think the IMF would
agree with thisthat the importance of the timing of a first
decision to raise rates is something
that should not be overblown, whether its September or December
or Marchwhat matters is
the entire path of rates. And, as Ive said, the Committee
anticipates economic conditions that
would call for a gradual evolution of the fed funds rate toward
normalization.
With respect to international spillovers, this is something that
we have been long attentive
to. Obviously, we have to put in place a policy that is
appropriate to evolving conditions in the
U.S. economy, but we cant promise that there will not be
volatility when we make a decision to
raise rates. What we can do is to do our very best to
communicate clearly about our policy and
our expectations to avoid any type of needless misunderstanding
of our policy that could create
volatility in the market and potential spillovers as well to
emerging markets, and I have been
trying to do that now for some time. Ive been doing my best to
make good on that pledge.
MARTIN CRUTSINGER. Marty Crutsinger with the Associated Press.
You just talked
about the fact that you cant promise that there wont be
volatility in the markets. There seem to
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be two schools of thought. One is that the Fed learned from the
mistakes made in the2013
with the taper tantrum, and that youre going to telegraph this
so well that that will limit it. And
the more pessimistic school of thought seems to be that when you
do start raising rates, theyve
been low for so long that its going to bemake the taper tantrum
seem mild by comparison.
Which camp are you falling in on that?
CHAIR YELLEN. I think our experience suggests that its hard to
have great confidence
in predicting what the market reaction will be to Fed decisions,
and there have been surprises in
the past. I dont think the Committee anticipated that its
decision would cause the taper tantrum.
And all I can say is that uncertainty in the markets at this
point about long-term rates doesnt
appear to be unusually high, and we can only do what is in our
power to attempt to minimize
needless volatility that could have repercussions for other
countries or for financial stability more
generally, and that is to attempt to communicate as clearly as
we can about our policy decisions,
what they will depend on, and what we are looking at.
We will be responding to incoming data. Weve tried to make that
clear. And I think its
clear that the market is also responding to incoming data, and
you can see that in daily market
reactions to surprises in the economic data. And, of course,
none of us can quite forecast what
incoming data will be.
BINYAMIN APPELBAUM. Your latest economic projections show that
you expect the
unemployment rateor, many officials expect the unemployment
rateto fall more slowly this
year and then to fall, by implication, more quickly next year.
Could you talk about what has
changed in your assessment of the labor market and how that
influences the path of policy?
CHAIR YELLEN. So we areproductivity growth has beenis a factor
that affects the
pace of improvement in the labor market. Productivity growth has
been extremely slow for the
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last couple of years, and I think, in part, the pace of
improvement in the labor market that were
projecting reflects the notion that theres likely to be some
pickup in the pace of productivity
growth. Obviously, thats something thats quite uncertain, and
its conceivable that if
productivity growth disappointssomething I hope that we wont
see, because that has very
negative implications for living standardswe could conceivably
see faster improvement in the
labor market.
But, in addition, there are other margins of slack that dont
show up in the unemployment
rate. Labor force participation that has, at least, isappears to
be depressed, at least to some
extent, because of cyclical weakness, and the fact that labor
force participation rate has remained
roughly stable for the last year or so when theres an underlying
downward trend suggests that
some slack is being taken up by, in a sense, improved or
diminished cyclical impact on labor
force participation. I expect that to continue, and I would
expect also to see some improvement
in the degree of part-time employment thats for economic
reasons.
JONATHAN SPICER. Jonathan Spicer with Reuters. To your point,
Madam Chair, on
needing more decisive evidence in order to initiate the first
rate hike, how close do you feel the
economy is to full capacity now? And given that, you know,
employer costs and monthly wages
are at a pace thats at a six-year high now, what is the riskor,
how does the risk change that
inflation could strengthen quicker than youre expecting?
CHAIR YELLEN. So the Committee estimates that the longer-run
normal level of the
unemployment rate is 5.0 to 5.2. At 5.5 percent, where we have
an unemployment rate that still
exceeds the Committees best attempts to estimate what is a
normal unemployment rate for this
economy, and, as I mentioned, there appear to be unusually large
elements of slack over and
above that in the form of somewhat still-depressed labor force
participation and part-time work
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for economic reasons. So I think its fair to say that most
members, most participants on the
Committee, wouldnt judge yetalthough some mightthat most wouldnt
judge us to be at,
quote, maximum employment.
Wage increases are still running at a low level, but there have
been some tentative signs
that wage growth is picking up. We have seen an increase in the
growth rate of the employment
cost index and a mild uptick in the growth of average hourly
earnings. I would call these
tentative signs of stronger wage growth. I think its not yet
definitive, but that is a hopeful sign.
Still, however, inflationnot only headline, but, stripping out
food and energy
underlying inflation, core inflationis still running below the
Committees objective. So I think
we need to see additional strength in the labor market and the
economy moving somewhat closer
to capacitythe output gap shrinkingin order to have confidence
that inflation will move back
up to 2 percent, but we have made some progress.
GREG ROBB. Thank you. Greg Robb from MarketWatch. Id like to
turn your
attention to the housing market for a question. Both rents and
house prices have been rising
rapidly recently, squeezing Americans on both sides. How
comfortable are you with this, and
does it impact monetary policy? Thank you.
CHAIR YELLEN. Well, I mean, the housethe increase in house
prices is restoring
wealth of many households who have that as their major asset. It
is an important part of the
wealth of American householdthe American household sector. And
for all of the households
that were underwater, those house price increases are improving
their financial condition,
although, of course, at the same time, its making housing less
affordable for those who look
to buy.
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At the same time, housing overall, given the low levelsstill low
level of mortgage rates,
remains quite affordable. I think credit availability remains
quite constrained for mortgages.
Anyone who doesnt have a pristine credit rating isfinds it very
difficult at this point to qualify
for a mortgage, and I think were seeing quite a bit of
reluctance, given the job market and given
what the history of whats happened to house prices, of young
people to want to buy homes.
Weve seen them delay marriage and wanting to have the
flexibility to move. So the demand for
multifamily housing to rent is very high, and rent prices are
moving up, I think, because of that.
JEREMY TORDJMAN. Hi, Jeremy Tordjman with Agence France-Presse.
I have a
question on Europe. As you know, there is a growing political
gridlock on Greece, and the
scenario of a Grexit is getting every day more likely. So how
concerned are you by these
developments? Do you feel it could impact the global and the
U.S. economy, and could it
influence in anywherein any way, sorry, when you will decide to
increase the interest rates?
CHAIR YELLEN. Well Iunfortunately, Greece and its creditors are
faced with very
difficult and consequential decisions at this point and in the
days ahead, and my hope is that they
will continue to work together to try to find a solution to the,
you know, current difficulties and
impasse. Obviously, European leaders place great value on
preserving European monetary,
economic, and political integration, and the Greek people have
made clear that its important to
them to remain in the euro area. So this is a very difficult
situation.
In the event that there is not agreement, I do see the potential
for disruptions that could
affect the European economic outlook and global financial
markets. I would say that the United
States has very limited direct exposure to Greece, either
through trade and financialor financial
channels. But to the extent that there are impacts on the
euro-area economy or on global
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financial markets, there would undoubtedly be spillovers to the
United States that would affect
our outlook as well.
CHRISTOPHER CONDON. Thank you. Chris Condon from Bloomberg
News.
Madam Chair, Id like to come back to the topic of consumer
spending. Consumer spending has
been very disappointing for many months in the U.S. economy. Im
wondering, do you think
there has been a meaningful shift, and one that will persist in
the behavior of households, with
respect to spending and savings? Or would you be more inclined
to look at the recent more
encouraging retail sales figures and see perhaps a return of the
American consumer there?
CHAIR YELLEN. So I think in recent weeks we have received data
that suggest that
consumer spending is growing at a moderate pace. Id say, you
know, car sales, for example,
were very strong. Part of it probably represents payback for
weak sales during the winter
months, but, nevertheless, the pace of car sales has been
strong. And recent readings on retail
sales and on spending on services have suggested an improvement
in the pace of consumer
spending.
There are questions at this point about just how much impact
weve seen of lower energy
prices on consumer spending. The decline in oil prices
translates into an improvement in
household income, on average, of something like $700 per
household, and Im not convinced yet
by the data that we have seen the kind of response to that that
I would ultimately expect. And I
think its hard to know at this point whether or not that
reflects a very cautious consumer that is
eager to add to savings and to work down borrowing. Or, in part,
some survey evidence suggests
that consumers are not yet confident that the improvement theyve
seenthe decline in their
need to spend for energy, for gasolinethat thats going to be
something that will be permanent.
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They may think its a transitory change and not yet be
responding. So I think the jury is out
there, but I think we have seen some pickup in household
spending.
PETER BARNES. Peter Barnes, Fox Business. Madam Chair, I wanted
to shift over to
the decision in the AIG case this past Monday. And in it, the
judge in the case said in his
opinion, quote, There is nothing in the Federal Reserve Act or
any other federal statute that
would permit a Federal Reserve Bank to take over a private
corporation and run its business as if
the government were the owner, yet that is precisely what the
Federal Reserve Bank of New
York did, and the judge went on to cite the replacement of AIGs
chief executive officer and
taking control of AIGs business operations. I wanted to ask you,
did the Fed break the law in
assisting AIG back in the crisis? And if this decision is upheld
on appeal, how does that affect
the Feds toolbox? How does it affect its ability to help firms
in trouble in a future financial
crisis? Would it make that kind of assistance illegal, or would
you have to get Congress to
change the law and make a fix? Thank you.
CHAIR YELLEN. So the Federal Reserve strongly believes that its
actions with respect
to AIG in 2008 were legal, proper, and effective, and it
believes that they were necessary, given
the threat that a disorderly failure of that company would have
likely implications for the
economy, for the flow of credit to households, in businesses in
the economy. And it believes that
thewe believe that the terms of that intervention were tough,
and appropriately so, in order to
protect taxpayers from the risks that those rescue loans
presented at the time they were made.
Now, I should emphasize that Dodd-Frank changed our 13(3)
authority and said that the
Federal Reserve may not in a future crisis intervene to attempt
to address the issues of a
particular company. At the same time, it gave the government a
set of new tools that it could use
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in a situation like the AIG situation or Lehman to try to
resolve such a situation that poses
systemic risks in an orderly way.
TheId just say at this point, the Federal Reserve under
Dodd-Frank can continue, if
necessary, in some future crisis to engage in broad-based
programs similar to the program we
had in effectthe programs we had in effect in 2008 to provide
support for the issuance of asset-
backed securities that enabled loans to small businesses and to
students and for credit cards and,
you know, for credit throughout the economy, or to support the
issuance of commercial paper.
At this point, I believe we are working with the Department of
Justice to decide on next steps.
MARK HAMRICK. Madam Chair, Mark Hamrick with Bankrate.com. So
much
discussion about rising rates seems to focus on the potential
negatives, and Im wondering if you
could talk a little bit if you envision some possible unintended
benefits of higher rates. And one
of the things Im thinking about is the fact that savers have
suffered through so many years of
miserly returns, and many may be actually anticipating in a
positive way seeing a better return on
their investment. Thank you.
CHAIR YELLEN. So let me say, to my mind, the most important
positive is that itI
believe a decision to raise rates would signify very clearly
that the U.S. economy has made great
progress in recovering from the trauma of the financial crisis
and that were in a different place.
I think, hopefully, that would be something that would be
confidence-inducing for many
households and businesses.
From the point of view of savers, of course this has been a very
difficult period. Many
retireesand I hear from some almost every dayare really
suffering from low rates that they
had anticipated would bolster their retirement income. This, you
know, obviously has been one
of the adverse consequences of a period of low rates.
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Theyou know, we have a good reason for having kept rates at the
levels that we have.
Weour charge from Congress is to pursue the goals of maximum
employment and price
stability. Thats what weve been doing. And obviously there are
benefits from a strong
economy to every household in the economy, including savers,
from having a better job market
and a more secure economy. But, yes, when the time comes for us
to raise rates, I think there
will be some benefits that flow through to savers.
JIM PUZZANGHERA. Hi, Jim Puzzanghera from the L.A. Times. Just
to follow up on
that question, I think a lot of savers, people on fixed incomes,
were hopeful that they would see a
rate increase if not this meeting, soon. What sortwhat kind of
assurances can you give them
and people out there who think the Fed is never going to raise
rates? Ive got some e-mails today
from people saying, Theyre never going to raise rates. What kind
of assurance can you give
to people who are waiting for that to happen?
CHAIR YELLEN. I cant give an ironclad promise, but I think its
clear from our
Summary of Economic Projections that we anticipate that the
economy will grow, that the labor
market will improve, that inflation will move back up to 2
percent as weis our objective over
the medium term. And if economic conditions unfold in the way
that most of my colleagues and
I anticipate, we see it as appropriate to raise rates. And, as
you can see, the largest number of
participants anticipate that those conditions should be in place
later this year.
Obviously, we have toyou know, there can be surprisesthat might
not happen. Its
not an ironclad guarantee, but we anticipate that thats
something that will be appropriate later
this year.
MICHAEL DERBY. Mike Derby with Dow Jones Newswires. Could you
shed some
additional light on how large reverse repo operations are likely
to be in their initial phase? And,
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additionally, how important are financial conditions to the pace
of the Feds tightening cycle? I
mean, how important is the markets reaction in determining how
fast or slow and the ultimate
endpoint of a Fed tightening cycle?
CHAIR YELLEN. So, with respect toyou asked first about overnight
reverse repos.
And we communicated in our minutes that the Committee has an
intention to make sure that they
are availableovernight repos are available in large quantity at
liftoff to ensure that we have a
smooth liftoff, that there will be an elevated level of
provision of overnight RRP. However, it is
our expectation and plan that fairly quickly after liftoff we
will reduce the level of the overnight
RRP facility, and we have a variety of ways in which we can do
that.
With respect to market reactions, we always, in evaluating the
economic outlook, have to
take account of financial conditions, whether its the level of
long-term interest rates or the value
of the dollar in assessing the economic outlook. To the extent
that there are market reactions and
market movements, whether theyre in reaction to decisions of
ours or in reaction to other
eventsforeign events or unfolding economic conditionswe will
always take those into
account in deciding on the appropriate path of policy.
STEVE BECKNER. Steve Beckner of MNI. Madam Chair, good to see
you. You
mentioned that the dollar has stabilized. And, in fact, since
mid-March, I believe its given up a
good bit of its gains from last summer. To what extent now do
you think that there will be an
ongoing drag from the dollar, taking into account this dollar
retreat? And, overall, how
important is the dollar exchange rate in monetary policy these
days relative to the past?
CHAIR YELLEN. Well, I think we still are, since last summerhave
seen an
appreciable increase in the value of the dollar vis--vis most of
our trading partners, including
emerging markets. So it is a significant appreciation of the
dollar, and I think we have seen that
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its had a negative effect on net exports and so served as
something of a drag on the economy,
and probably that drag is going to continue for some time to
come. So it is a factor affecting the
outlook. In addition, import prices for non-oil imports continue
to fall, and I think thats serving
to push down core inflation a little bit. Eventually, I expect
that impact to ebb, but it is a factor
affecting the outlook.
That said, we obviously have no target for the dollar. We take
movements in the dollar
and its economic impact as one of many factors affecting the
outlook. And, in spite of the
appreciation of the dollar, the Committee obviously thinks that
the economy is likely to do well
enough to calllikely call for some tightening later this
year.
JOHN HELTMAN. Hi, John Heltman with American Banker. Id like to
ask a
regulatory question, if I could. Last month, Senator Elizabeth
Warren and Congressman Elijah
Cummings sent a letter to the GAO asking about an inquiry into
the Fed and other regulators
implementation of the Community Reinvestment Act, a concern
being that the CRA, as its
implemented now, is not giving communitiesblighted communities,
like in Baltimore or other
placesenough access to basic banking services. Do you think that
the Fed is doing everything
it can in its CRA implementation to give access to those
communities to these kinds of services?
Do you think it needs to be doing more?
CHAIR YELLEN. So we take CRA very seriously and evaluate for
those banks that we
supervise. We have a set of guidelines and are very
conscientious in attempting to evaluate CRA
performance. Its something that we certainly take into account
in assessing applications that we
receive for mergers, and we have very active programs to try to
bring together community
groups with banking organizations to try to provide them with
information about how they can
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assess community needs and best address them. But we are looking
at CRA and continue to look
to see whether there are ways in which implementation could be
improved.